The Impact Of Local Fiscal Expenditure Scale And Structure On Urban-Rural Income Gap

At the beginning of reform and opening up,rural economic reform measures such as family contract responsibility system improved the enthusiasm of farmers for agricultural production.The rapid rise of township enterprises also provided an opportunity for the transformation and development of the rural economy.As a result,the income of rural residents has been greatly improved,and the income gap between urban and rural residents had shrunk significantly.However,since the late 1980s,rigid agricultural product purchase and sales mechanisms and heavy rural tax burdens had hindered the further growth of rural residents' income;with the promotion of urban state-owned enterprise reform,the intangible subsidies enjoyed by urban residents relative to rural residents,and other factors,once again,the income gap between urban and rural residents had widened.In the 21st century,the Chinese government had taken a series of measures to narrow the income gap between urban and rural areas,such as abolishing agricultural taxes and establishing the rural minimum livelihood guarantee system.It can be seen that at present,China has narrowed the income gap between urban and rural areas mainly through a series of financial policies.Since the reform of the system of tax distribution,the local fiscal expenditure has occupied the main body of the government's fiscal expenditure.However,for local governments,is equalization of income the primary decision?Can simply expands the scale of local fiscal expenditure to narrow the income gap between urban and rural areas?Different types of fiscal expenditure have different paths to urban-rural income gaps.So,do the proportions of various types of fiscal expenditure have different influences on the urban-rural income gap?Exploring the above issues will help solve the urban-rural income gap issue more directly and efficiently.Firstly,according to the ways affect urban-rural income gap,this paper divides the main financial expenditure functional subjects into five categories:administrative management;culture,education,science,and health;economic construction;social insurance;agriculture,forestry and water affairs.By discussing the mechanism of various types of fiscal expenditure affecting the urban-rural income gap,this paper makes assumptions of the directions of the influences of the proportion of these five types fiscal expenditure to the general fiscal statement expenditure on urban-rural income gap;and the direction of the influence of the scale of local fiscal expenditure on urban-rural income gap.In this paper,the dynamic panel data model is used for empirical analysis,and 31 provincial administrative district data during 2007-2016 are selected as the analysis objects.The explained variable of the model is the urban-rural income gap measured by Theil index.Compared with the income ratio of urban and rural residents,the use of Theil index to measure the urban-rural income gap takes into account the influence of the urban-rural population ratio on the urban-rural income gap.Compared with the Gini coefficient,Theil index measures the urban-rural income gap more directly,and the calculation process is simpler.The explanatory variables include the first-order lag of urban-rural income gap,the local fiscal expenditure scale variable measured by the ratio of local financial statement expenditure to local GDP,and the local fiscal expenditure composition variables measured by the proportion of various local fiscal expenditure to the total expenditure of local financial statement expenditure.Referring to the relevant literature about the urban-rural income gap,this paper adds the following control variables:the initial income distribution pattern,the local tax structure,the level of opening up,and the level of financial development.Due to the existence of the lag term of the explained variable,this paper selects the dynamic panel analysis method to estimate the model.Considering the short dynamic panel data used,this paper uses the system generalized method of moment(GMM)technique to estimate the model in two different situations:only the first-order lag of urban-rural income gap is the endogenous variable;both the first-order lag of urban-rural income gap,and fiscal expenditure scale and structural variables are endogenous variables.In the latter case,the robustness examination is performed using the difference generalized method of moment technique.Based on theoretical analysis and empirical analysis,the paper draws the following conclusions:(1)The urban-rural income gap is a dynamic process with significant path dependence characteristic.The larger the urban-rural income gap in the previous period,the greater the urban-rural income gap in this period.(2)Local government's fiscal expenditure is more biased towards cities than rural areas.The increase in the scale of local government fiscal expenditure will lead to an increase in the urban-rural income gap.(3)When it is considered that there is a causal relationship between the government fiscal expenditure policy and the urban-rural income gap,the increase in the proportion of administrative affairs expenditure,social insurance expenditure,and culture,education,science and health expenditure will increase the urban-rural income gap;increase the proportion of economic construction,agricultural,forestry and water affairs will narrow the income gap between urban and rural areas.(4)Reduce the proportion of laborers' income in the initial income distribution.The increase in the proportion of indirect taxes to tax revenue;open wider to the outside world;and improve the level of financial development will widen the income gap between urban and rural areas.In view of the above conclusions,this paper proposes the following suggestions:(1)Improve the assessment system for local officials and strengthen the protection of workers' interests,narrow the urban-rural income gap from the root causes.(2)Appropriately reduce the participation of local government in economic activities and the scale of local government fiscal expenditure;increase the proportion of expenditure on agricultural,forestry and water affairs and expenditure efficiency while reducing unnecessary administrative affairs expenditure;equalize the expenditure on culture,education,science,health and economic construction and social insurance between urban and rural residents.Compared with the existing research,the innovation of this paper is reflected on:the classification of local fiscal expenditure is more detailed,so the analysis to the paths affecting the urban-rural income gap is more targeted;adding initial income distribution,local tax system as control variables-these two factors significantly affect the urban-rural income gap;Theil index is used to measure the urban-rural income gap.The shortcomings of this paper include:due to the lack of data,it is impossible to further subdivide various fiscal expenditure;it is difficult to consider the system factors that affect the urban-rural income gap,such as the government decentralization system and household registration system.It is therefore uneasy to come up with policy recommendations from a more in-depth perspective.